Bill Clinton created the Subprime Mortgage Crisis with his Policy Statement on Discrimination in Lending
Week in Review
The proof is in the pudding. And that pudding is the Federal Register. Or as some would say the smoking gun in the subprime mortgage crisis (see Smoking-Gun Document Ties Policy To Housing Crisis by PAUL SPERRY posted 10/31/2011 on Investors.com).
At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.
The threat was codified in a 20-page “Policy Statement on Discrimination in Lending” and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.
The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.
“The agencies will not tolerate lending discrimination in any form,” the document warned financial institutions.
So this is where it all started. In 1994. When the government pressured lenders to qualify the unqualified. To put people into houses they couldn’t afford. Or else.
The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial “discrimination.” But it was simply good underwriting.
It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower’s credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.
The study did not take into account a host of other relevant data factoring into denials, including applicants’ net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.
When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.
Still, the study was used to support a wholesale abandonment of traditional underwriting standards — the root cause of the mortgage crisis.
So there was no racism. No redlining. Just good mortgage lending practices. But good mortgage lending practices don’t buy you votes. Or get you kickbacks from mortgage lenders.
Confronted with the combined force of 10 federal regulators, lenders naturally toed the line, and were soon aggressively marketing subprime mortgages in urban areas. The marching orders threw such a scare into the industry that the American Bankers Association issued a “fair-lending tool kit” to every member. The Mortgage Bankers Association of America signed a “fair-lending” contract with HUD. So did Countrywide.
HUD also pushed Fannie and Freddie, which in effect set industry underwriting standards, to buy subprime mortgages, freeing lenders to originate even more high-risk loans.
So how do you qualify the unqualified and avoid the wrath of the federal government? That’s easy. You create the subprime mortgage market. And then you get Fannie Mae and Freddie Mac to buy these toxic mortgages and pass them on to unsuspecting investors. Freeing up the mortgage lenders to make more bad loans. And putting the world on a course to financial calamity.
All in a day’s work for an activist, corrupt, Big Government.
Clinton’s task force survived the Bush administration, during which it produced fair-lending brochures in Spanish for immigrant home-loan applicants.
And it’s still alive today. Obama is building on the fair-lending infrastructure Clinton put in place.
As IBD first reported in July, Attorney General Eric Holder has launched a witch hunt vs. “racist” banks.
“It’s a more aggressive fair-lending enforcement approach now,” said Washington lawyer Andrew Sandler of Buckley Sandler LLP in a recent interview. “It is well beyond anything we saw during the Clinton administration.”
Guess we haven’t learned the lessons of the subprime mortgage crisis. Or we have and just don’t care. Because buying votes and getting kickbacks from mortgage lenders is more important than preventing another subprime mortgage crisis.
All of this, of course, means that Wall Street didn’t cause the mess we’re in now. Bill Clinton did. And his racist lending policies. To correct for a racism in mortgage lending that wasn’t there. By qualifying the unqualified. And putting them into houses they couldn’t afford. Which the Obama administration appears to be doubling down on.
Boy. I’d hate to be in our shoes.
Tags: Bill Clinton, Clinton, discrimination in lending, Fannie Mae, Freddie Mac, lending, mortgage, mortgage lenders, mortgage lending, Obama, Policy Statement on Discrimination in Lending, racism, redlining, subprime mortgage, subprime mortgage crisis